Coeur De Lion Investments Pty Limited v The President's Club Limited
[2020] FCA 204
•25 February 2020
FEDERAL COURT OF AUSTRALIA
Coeur De Lion Investments Pty Limited v The President’s Club Limited [2020] FCA 204
File number(s): QUD 6 of 2020 Judge(s): GREENWOOD J Date of judgment: 25 February 2020 Catchwords: CORPORATIONS – consideration of an application for an interim injunction to restrain the respondent from engaging in conduct said to constitute a contravention of s 260A(1) of the Corporations Act 2001 (Cth) Legislation: Australian Securities and Investments Commission Act 2001 (Cth), ss 12CB, 12GF, 12GM
Corporations Act 2001 (Cth), ss 461(1)(g), 461(1)(k), 236, 260A, 606, 657A, 661, 913A, 913B, 1324, 1325
Cases cited: Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57
Burton v Palmer [1980] 2 NSWLR 878
Charterhouse Investment Trust Ltd v Tempest Diesels Ltd [1986] BCLC 1
Connective Services Pty Ltd v Slea Pty Ltd (2019) 373 ALR 65
Slea Pty Ltd v Connective Services Pty Ltd (2018) 359 ALR 159
Date of hearing: 10 February 2020 Date of last submissions: 10 February 2020 Registry: Queensland Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 108 Counsel for the Plaintiff: Mr P Dunning QC Solicitor for the Plaintiff: Alexander Law Counsel for the Defendant: Mr C Newlinds SC with Mr M Callanan Solicitor for the Defendant: McBride Legal ORDERS
QUD 6 of 2020 BETWEEN: COEUR DE LION INVESTMENTS PTY LIMITED ACN 006 334 872
Plaintiff
AND: THE PRESIDENT'S CLUB LIMITED ACN 010 593 263
Defendant
JUDGE:
GREENWOOD J
DATE OF ORDER:
25 FEBRUARY 2020
THE COURT ORDERS THAT:
1.The interlocutory application filed on 9 January 2020 is dismissed.
2.The applicant pay the respondent’s costs of and incidental to the application.
3.Pursuant to s 23 and s 37P of the Federal Court of Australia Act 1976 (Cth), rule 1.32 and rule 1.36 of the Federal Court Rules 2011, these orders and the reasons for judgment in support of these orders are made and published from Chambers.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
GREENWOOD J:
The interlocutory application
These proceedings are concerned with an interlocutory application for orders pursuant to ss 1324(4) and 1325(2) of the Corporations Act 2001 (Cth) (the “Act”) (or alternatively in the inherent jurisdiction of the Court) that the defendant, The President’s Club Limited (the “Club entity”), be restrained from taking any further steps in relation to the raising of levies from particular shareholders of the Club entity, or raising a “special levy” upon members of the Club entity, for the purpose of funding a representative proceeding in this Court (QUD 734/2019) commenced by Ian Lewis Consulting Pty Ltd (“Lewis Consulting”) as against Coeur De Lion Investments Pty Ltd (“CDLI”), Palmer Leisure Australia Pty Ltd (“PLA”), Palmer Leisure Coolum Pty Ltd (“PLC”), Closeridge Pty Ltd (“Closeridge”), Palmer Coolum Resort Pty Ltd (“PCR”) and Mr Clive Frederick Palmer. However, in the interlocutory application, CDLI describes the respondents to that proceeding as CDLI, PLC and Mr Palmer.
CDLI also seeks an order pursuant to the above two sections of the Act (and the inherent jurisdiction) that the Club entity not accept any further “voluntary contributions” from members or directors of the Club entity for the purpose of funding the representative proceedings.
Both of these orders are sought pending the determination of the proceedings or further order.
The orders are sought on the footing that the arrangements for the raising of levies and a special levy involves a contravention of s 260A of the Act on the footing that the Club entity is providing financial assistance in the acquisition of shares in the company.
I will return to the integers of s 260A of the Act later in these reasons and the relevant elements of s 1324 and s 1325 of the Act.
Before doing so, it is necessary to contextualise aspects of the relevant circumstances which have given rise to this application having regard to the material filed in support of the application and in response to it.
Framework considerations
The applicant, CDLI, owns 3,003 ordinary shares in the Club entity, or 40.1% of the 7,488 issued shares in the Club entity. The remaining 59.9% of the issued shares are held by individuals or entities that have elected to take up membership of the Club entity as a “Co‑owner” of an interest, as tenant‑in‑common, in a lot in the relevant Building Units Plans relating to a facility called the “Presidents Site” which forms part of a complex called a “Resort” (formerly known as the “Hyatt Regency Coolum International Resort” and now known as the “Palmer Coolum Resort”) made up of a number of facilities including the Presidents Site, another facility called the “Regency Site”, and another called the “Ambassadors Site”, all of which are definitional terms in clause 2 of the Memorandum and Articles of Association (the “MAA”) of the Club entity. Other facilities of the Resort are also available to members of the Club entity for use.
The Resort is located near Coolum on the Sunshine Coast in Queensland.
Those Co‑owners are persons (or entities) entitled to be registered as the registered proprietor of an interest, called a “Fractional Interest”, in a lot within the Presidents Site.
A Fractional Interest means a one fifty‑second (1/52) interest as tenant‑in‑common in a lot within the Presidents Site. That formulation divides a year into its 52 week component parts (as set out in detail in Schedule 1 to the MAA) which is central to the company’s existence as it was “established for the purpose of regulating the rights inter‑se of Members being persons entitled to Entitlement Weeks in the Presidents Site”: clause 3, MAA. An “Entitlement Week” means any period of one week commencing and ending at a defined time: clause 2, MAA. An “Entitlement” means the entitlement of a member to occupy one “Residential Apartment” within the Presidents Site for an Entitlement Week to which the Member’s share relates, and an entitlement to use the “Resort Facilities” of the Resort. A Residential Apartment means a lot within the Presidents Site: clause 2, MAA. The term “Resort Facilities” means the facilities defined in a document called the “Resort Administration Agreement” (the “RAA”). That document, as between the Club entity, the RAA and others, addresses the topic of “the administration and running of the Resort as a first class international resort”: clause 2, MAA.
Each share in the capital of the Club entity (apart from the subscriber shares) is designated in such a way that the share identifies the lot number of the Residential Apartment (within the Presidents Site which is either a lot in an area called the “Golf Village” or the “Tennis Village”) to which the share relates. Schedule 1 to the MAA sets out the share numbers with the period during which the member, holding a particular share, is entitled to occupy the Residential Apartment designated by the share number: clauses 82(c), 82(d), MAA and Schedule 1.
The fundamental right or privilege of the holder of a share in the capital of the Club entity is the right to exercise his or her (or its) “Entitlement” during the period specified in Schedule 1 as designated by reference to clauses 82(c), 82(d) and Schedule 1: clause 8, MAA.
It should be noted that the Club entity leases particular lots (144 in all) comprising the Residential Apartments (sometimes called villas) by two lease instruments with CDLI with the benefit of those leases being assigned to incoming members of the Club entity acquiring a Co‑ownership villa interest and corresponding shares in the Club entity.
The practical effect of these provisions of the MAA is that each Co‑owner enjoys the right to occupy a Residential Apartment (villa) within the Presidents Site for the relevant weeks which means that for a 52 week year there would be 13 Co‑owners for each villa. The co‑ownership interest is linked or stapled to shares in the capital of the Club entity. The acquisition of a co‑ownership interest together with linked shares in the Club entity is subject to the leases mentioned earlier. The non‑CDLI (Palmer) owners of shares in the Club entity collectively own 320 quarter shares in the Club entity.
One of the obligations of members is an obligation to pay a share of the “Annual Outgoings” (as defined in clause 2, MAA) of the Club entity corresponding with the member’s proportionate shareholding interest: clause 12, MAA. The share of the Annual Outgoings payable by the member may be levied by notice to members by the Club entity, at the discretion of the Board, monthly in arrears based on actual Annual Outgoings or monthly in advance based on estimated Annual Outgoings: clause 13, MAA. If based on estimated outgoings, members must pay or be credited with the differential once known: clause 13, MAA. The Board may issue levy notices in its absolute discretion. Levies are payable within one month of a notice: clause 13, MAA. The Board may also determine levies for working capital purposes at times determined by the Board in its absolute discretion: clause 14, MAA. The Board may also issue a “special levy” to raise money to pay a liability the company is unable to pay at the time the liability to pay arises: clause 14, MAA. These clauses define the scope of the power to “determine levies”, to “levy” and to issue “levy notices”.
The relevant clauses of the MAA relating to the topic of “Members’ Levies” are set out below:
MEMBERS’ LEVIES
12. Members must pay a share of the Annual Outgoings calculated with the following formula:
Amount payable equals Annual Outgoings, divided by total number of shares (other than subscriber shares), multiplied by the number of shares held by the Member.
13. The share of the Annual Outgoings payable by each member may be levied by notice to Members by the Company (at the discretion of the Board):
(a)Monthly in arrears based on actual Annual Outgoings; or
(b)Monthly in advance based on the estimates of the Annual Outgoings.
If the levies are issued on the basis of estimated Annual Outgoings then Members must pay or be credited with the difference between the amount paid in advance and the share of the actual Annual Outgoings payable by Members under Article 12.
The Board may issue levy notices at times determined by the Board in [its] absolute discretion. Levies are payable within one month of the issue of a levy notice.
14. The Board may determine levies for working capital purposes. The purpose of a working capital levy is to ensure that the Company has sufficient funds to meet [its] financial obligations as they fall due. The Board may issue levy notices for working capital levies at times determined by the Board in [its] absolute discretion. Working capital levies are payable within one month of the issue of a levy notice.
15.(a) Should the Company at any time become liable to pay any moneys that it is unable to pay forthwith then it may levy its Members to raise sufficient moneys to cover its liability (such levy hereinafter called a “special levy”);
(b) In respect of each special levy each Member shall contribute to the funds of the Company in respect of each share in the capital of the Company of which he or she is the registered holder a sum of money equal to the proportion of the special levy that his or her share bears to the total issued shares in the Company from time to time excluding subscriber shares;
(c) Contributors pursuant to paragraph (b) hereof shall become due and payable at such times as the Board shall determine.
…
18. Notwithstanding anything contained in Article 13 or Article 15 the subscribers to the Memorandum of Association shall not be liable to make any contributions to the funds of the Company.
…
20. The provisions of Articles 13, 14 and 15 shall be in addition to any other indebtedness by the Member to the Company.
…
The term “Annual Outgoings” means:
(a)rates, taxes, levies, charges, fees, costs, expenses levied or to be levied or incurred by the Body Corporate of the Presidents Site and levied or incurred by the Company; and
(b)the operational costs and overheads of the Company in relation to its rights and obligations under the [RAA] and in relation to the operation of the Resort; and
(c)levies determined by the Company in its absolute discretion to enable the Company to comply with its obligations under the [RAA], other than its obligations to pay the Total Costs [as defined]; and
(d)all amounts payable by the Company to the Resort Administrator under the [RAA], other than Total Costs, but excluding any GST payable by the Company [or any GST amount].
The “Company” is, of course, the Club entity.
The Resort is now known as the Palmer Coolum Resort.
Mr Palmer’s association with the Resort arose, put simply, in this way. Coeur De Lion Holdings Pty Ltd (“CDLH”) owns all the shares in CDLI. Between 1 July 2011 and 9 March 2012, the company now known as Palmer Leisure Coolum Pty Ltd acquired 98% of the shares in CDLH. Closeridge Pty Ltd acquired the remaining 2% of those shares between 13 March and 19 March 2012. Closeridge, PLC, CDLH and CDLI (together with other entities, Palmer Leisure Australia Pty Ltd and Palmer Coolum Resort Pty Ltd) are companies of which Mr Clive Palmer is a director. Mr Palmer is said to be the guiding mind and ultimate beneficial owner of all of these companies. The acquisition of the shares in CDLH by PLC (and relevantly the further acquisition by Closeridge) was the subject of decisions by the Takeovers Panel which attracted a range of litigation. The Takeovers Panel made a declaration under s 657A of the Act that the circumstances were “unacceptable circumstances”. The Club entity maintains the position that the acquisition of the shares engages a contravention of the prohibition in s 606 of the Act.
There is one other contextual matter that concerns issues arising in related proceedings in the Federal Court to be mentioned shortly, having regard to a cross‑claim by the Club entity in that proceeding. The scheme at the heart of the activities of the Club entity is described by the Club entity as a “Letting scheme” and is described by CDLI as a “Time‑Sharing Scheme”. The Club entity says that an element of the Letting Scheme is a “Letting Pool Referral Agreement” by which each member: relinquished their right of occupancy; placed their entitlement in a letting pool managed by Palmer Coolum Resort Pty Ltd (formerly Coolum Resort Pty Ltd), the entity now described as the Resort Administrator; acquired a right to share in the letting pool income; was conferred with a right to occupy a villa for the number of nights consistent with their entitlement, at a concessional rate; and, recognised that the Resort Administrator would manage the letting pool.
The earlier Federal Court proceeding (the “December 2019 proceeding”)
In December last year between 2 December and 13 December 2019, proceedings in relation to CDLI’s application for an order that the Club entity be wound up pursuant to ss 461(1)(g) and 461(1)(k) of the Act were heard. Those proceedings were fully contested by the Club entity which had also filed a cross‑claim seeking relief against CDLI and other parties.
The decision is reserved.
CDLI seeks a winding‑up order on two grounds.
First, CDLI contends that the scheme which it describes as a time‑sharing scheme operated by the Club entity is a “Managed Investment Scheme” for the purposes of Chapter 5C of the Act. It contends that since 13 March 2012, the Club entity has been conducting that scheme unlawfully as it has failed to comply with the registration requirements for a managed investment scheme contained in s 601EA and s 601EB of the Act. It contends that the Club entity is conducting the scheme in contravention of s 601ED(5) of the Act. It also contends that the Club entity has not, at any relevant time, held an Australian Financial Services Licence (“AFSL”) under the Act: see ss 913A and 913B. These matters go to the just and equitable ground relied upon by CDLI: s 461(1)(k).
Second, on 28 November 2013, a resolution was passed at an Annual General Meeting of members of the Club entity by which a new Article 38A was adopted which has the effect of restricting CDLI and its associated entities from voting, on a poll, more than the number of votes equal to 10% of the total number of votes that may be cast on a resolution other than in relation to a resolution to wind up the Club entity. The voting restriction resolution is said to be oppressive, unfairly prejudicial to, or unfairly discriminatory of, CDLI: the s 461(1)(g) ground.
The Club entity opposes both grounds.
The Club entity says that it is not conducting a managed investment scheme for the purposes of the Act. It says the contention that the letting scheme became an unlawful scheme from 13 March 2012 needs to be understood in the context of a deed poll given by CDLI on 31 January 2005, an ASIC exemption and subsequent revocation by CDLI of the deed poll. It says that the passing of the resolution needs to be understood in the context of the events which led to the deed poll having been given by CDLI. It contends that the acquisition of the shares remains, consistent with the declaration of the Takeovers Panel, “unacceptable” and a contravention of the Act.
More fundamentally, for present purposes, the Club entity resists the application for the winding‑up order on the footing that Mr Palmer, CDLI and entities associated with Mr Palmer engaged in a wide‑range of conduct between 15 September 2011 and late 2015 which is properly characterised as “oppression” on the part of those parties. The Club entity says that a winding‑up order ought not to be made in circumstances where the factual matters which are relied upon by CDLI as giving rise to the inability of the Club entity to function in the way contemplated by the MAA, concerns the conduct of oppression, as alleged, on the part of the CDLI (Palmer) parties.
In other words, the Club entity says that CDLI ought not to be able to “bootstrap” itself into a winding‑up order in reliance upon its own oppressive conduct.
All of those matters are the subject of determinations to be made in the proceedings presently reserved for decision. There are many matters which are said to go to the conduct of oppression. Simply by way of illustration, they include, across the continuum, the revocation of the deed poll; the failure of the Resort Administrator to comply with the RAA; the ceasing of the Letting Pool to operate; disconnection of power and water to the villas; a failure to maintain the Resort as an international resort of standing (5 star standing); prevention of access by members to the villas; closure of the Resort; and many other things as pleaded and the subject of a range of evidence.
As mentioned, all of these matters are relied upon by the Club entity to defend or resist the application for the winding‑up order.
However, the Club entity also gave notice in those proceedings of a cross‑claim by which the Club entity claimed damages pursuant to s 236, Schedule 2 (the “ACL”) to the Competition and Consumer Act 2010 (Cth) or alternatively at law, or in equity. The Club entity also claimed relief under s 234 of the ACL. That cross‑claim was made against CDLI and the parties said to have engaged in the conduct of oppression. Those entities, joined to the cross‑claim, are Palmer Leisure Australia Pty Ltd, PLC, Closeridge, Palmer Coolum Resort Pty Ltd and Mr Palmer. In the Concise Statement of Cross‑Claim, the Club entity relied upon all of the factual matters raised by paragraphs 1 to 19 of its Concise Response and otherwise asserted these four things.
First, the conduct constituting the oppression is unconscionable under the general law and conduct contrary to s 21 of the ACL or s 12CB of the Australian Securities and Investments Commission Act 2001 (Cth) (the “ASIC Act”).
Second, CDLI and Palmer Coolum Resort Pty Ltd (the Resort Administrator) owed fiduciary obligations to the Club entity not to act against its interests as a whole or for an improper purpose or put its interests before those of the Club entity.
Third, those entities breached those duties.
Fourth, had Mr Palmer and the Palmer entities not engaged in the oppression, the Club entity would have continued to receive Letting Pool Income under the RAA, which is a conclusion arising as a matter of inference from the circumstance that in the financial years ending 2010 and 2011, the Club entity received $5,895,440.64 and $6,769,111.68 respectively.
As to the cross‑claim, counsel for the Club entity, Mr Newlinds SC, at the close of the first day of the hearing on 2 December 2019 in CDLI’s winding‑up proceedings, advised the Court that there was no longer any “need to worry about the cross‑claim” because “[i]t had all sorts of problems, but fundamentally, it was the wrong plaintiff” and “[t]he oppression suit seeks compensation for the same losses, and we think that’s by a more appropriate plaintiff”: T, p 68, lns 21‑24. It should be noted that Mr Newlinds SC also said at T, p 192, lns 3‑33, that although he had said that the cross‑claim had the problems he had earlier identified, it was not an admission that the cross‑claim was “hopeless”, but simply that the same damage might lie against different people and no “double recovery” can occur, and although an arguable case had been made for some loss by the Club entity, the better and more obvious plaintiff is the shareholders as a group.
These remarks were primarily directed to the contention on the part of CDLI that maintaining the cross‑claim was an abuse of process.
The reference by Mr Newlinds SC to the “oppression suit” is a reference to a representative proceeding commenced in this Court on 27 November 2019 (QUD 734/2019) by Ian Lewis Consulting Pty Ltd. Lewis Consulting is controlled by Mr Ian Lewis. It holds his interest as a shareholder in the Club entity and his co‑ownership interest in the relevant lot/villa. He has been a director of the Club entity since 1 November 2001 and he gave evidence in the Federal Court December 2019 proceeding. The other directors of the Club entity are Mr Bruce Wallis (from 20 October 2004), Mr Patrick Kelly (from 26 May 1995), Mr Colin Owen (from 23 November 2015) and Ms Maree Frecklington (from 23 November 2016).
These things should be noted about the representative proceeding.
First, the applicant, Lewis Consulting, brings the proceeding as a representative plaintiff.
Second, the Group Members are persons who exhibit these characteristics. First, they are persons who held one or more parcels of 13 fully paid ordinary shares (a “Share Parcel”) in the Club entity on 20 March 2019 (an existing member) or who, alternatively, acquired one or more Share Parcels after 20 March 2012 (a subsequent member), and in either case remain holding those Share Parcels at the date of filing, 27 November 2019. Second, they are persons who suffered loss and damage by or resulting from the oppression of the respondents to the proceeding as set out in the supporting Concise Statement. Third, they are persons who are not, relevantly: (i) an existing member or a subsequent member who, from time to time after 27 November 2019, owes more than $500 per Share Parcel to the Club entity outstanding for more than one month; or (ii) directors or officers or a close associate or related entity of the respondents to the proceeding; or (iii) a related party, related body corporate or an associated entity of the respondents.
Third, the applicant, on behalf of itself and the Group Members, claimed the following order:
An order pursuant to sub‑section 233(1) of the Act, that the Respondents, or one or more of them:
(a)purchase all Share Parcels (and associated “villa interests” as defined in the concise statement held by the Applicant and Group Members who are existing members at a price determined by the Court, but not less than $65,000 per Share Parcel (and associated villa interests);
(b)purchase all Share Parcels (and associated villa interests) held by any Group Members who are subsequent members at a price determined by the Court;
(c)pay compensation for the loss and damage suffered as a consequence of the oppression.
[emphasis in italics added]
Fourth, the applicant also claims, for itself and the Group Members, damages pursuant to s 236 of the Act or, alternatively, s 12GF of the ASIC Act, or alternatively damages at law or equitable compensation. Relief is also sought under s 243 of the ACL or s 12GM of the ASIC Act.
Fifth, the respondents to the proceeding and thus the parties against whom the order quoted above is sought, are CDLI, Palmer Leisure Australia Pty Ltd, PLC, Closeridge, Palmer Coolum Resort PL and Mr Clive Palmer.
Sixth, the concise statement in support of the originating application in the representative proceeding asserts the same material facts asserted in the previous concise statement in support of the Club entity’s cross‑claim (which, in turn, adopted all of the material facts asserting oppression recited in the concise response to CDLI’s concise statement in support of the application for the winding‑up orders).
Those matters now bring me to the circumstances relating to the funding of the representative proceeding.
Circumstances relating to the funding of the representative proceeding
Apart from giving evidence in the December 2019 proceeding, Mr Lewis affirmed two affidavits of relevance to this question: one in the December 2019 proceeding (affirmed 29 November 2019) and one in this proceeding (affirmed 7 February 2020).
In the affidavit of 29 November 2019, Mr Lewis gives this evidence touching on these matters.
Since late 2017, Mr Lewis has been seeking advice from the lawyers for the Club entity about a possible representative proceeding by the “Owners” against the Palmer companies with a view to seeking a remedy under s 232 and s 233 of the Act as an “ideal way” to bring about an end to the “unsatisfactory situation” at the Resort, as the proposed order “would compel the Palmer companies to buy out the other Owners at a fair price” [emphasis added]. By the time that Mr Lewis sought this advice, the Club entity had been unsuccessful in having the declaration of the Takeovers Panel enforced (that is, enforced by the Australian Securities and Investments Commission (“ASIC”) so as to secure an offer for the shares of the other non‑CDLI owners), or in securing a negotiated resolution with Mr Palmer. Mr Lewis then sought separate advices from counsel including Mr Handran, Mr Newlinds SC and Mr Jackson, between 15 June 2018 and 9 November 2018 on the question of possible representative proceedings. Other proceedings between CDLI and the Club entity and in some cases, other parties, were commenced in various forums including the Magistrates Court of Queensland, the Supreme Court of Queensland and the Federal Court of Australia. It is not necessary to describe those various proceedings throughout 2018 which Mr Lewis says made it difficult to progress thinking and decision‑making about a representative proceeding.
Although Mr Lewis thought, from late 2017, that the best outcome for all members other than Mr Palmer, was a result requiring Mr Palmer “to buy their stapled interest at a fair price”, Mr Lewis wanted to try and achieve that result without Court proceedings in the name of any of the shareholders in the Club entity. None of the owners who Mr Lewis spoke with wanted to be a “lead litigant” in a representative action. These concerns caused Mr Lewis to re‑visit the legal advice he had obtained. He was advised again that a representative proceeding would be necessary if he were to achieve the result he sought to achieve.
Although a proceeding was ready to be filed by March 2019, a lead representative applicant had not been identified. This caused Mr Lewis to believe that his company would probably have to be the lead representative. On 24 June 2019, a directors’ meeting of the Club entity took place. Mr Lewis told the directors that his accountant was examining the suitability of his company as a vehicle for a representative applicant. The solicitors for the Club entity pressed for an answer from Mr Lewis. Investigations about the suitability of Mr Lewis’s company continued between June and November 2019. By 11 November 2019, Mr Lewis decided that his company could not be a representative applicant. He so advised the directors of the Club entity at a meeting on 11 November 2019. Mr Lewis says that he then had a conversation with Mr Newlinds SC and Mr Robson (the solicitor for the Club entity). Mr Lewis then agreed that his company would be the lead representative because he believed that “obtaining a buy‑out order is in the best interests of the Owners and in the best interests of the Club [entity]”.
The next step was that on 26 November 2019, the directors of the Club entity resolved to indemnify Lewis Consulting “in the conduct of the representative action by raising levies from the Owners other than Mr Palmer for that purpose”. Mr Lewis did not vote on the resolution due to his conflict of interest. Mr Lewis says that “there are a number of current members who would like to sell their interest at a fair value, but have been unable to do so because there is virtually no market for those interests, other than Mr Palmer”.
As to the resolution to indemnify Lewis Consulting, the minutes are an annexure to an affidavit of Mr Lewis of 7 February 2020.
The minutes are in these terms:
MINUTES of BOARD MEETING:
Opened at 5.30pm
1. Notes
a. It is noted that:
i.The directors had received advice from McBride Legal and Mr Robert Newlinds SC that the Club would almost certainly succeed in defending the current winding up application but that as we are engaged in a “war of attrition” with Mr Palmer it was advised that the Club stopped being passive and that it and [its] members had a positive strategy to force Mr Palmer to buy the shares at a fair price. With such a strategy it was inevitable that at some point in the future Mr Palmer would get control and members would lose their villas. The only viable strategy was for a member to bring a claim [for the] benefit of all members to force a [buyout] based on Mr Palmer’s oppressive conduct and that the Club indemnify that member by means of a special levy for that purpose;
ii.Ian Lewis Consulting Pty Ltd is going to commence a representative action on behalf of all non‑Palmer members of the Club to seek an order of the buyout of their shares and villa interests;
iii.The directors of the Club had received advice from Mr Newlinds SC and McBridge Legal that it was appropriate, and in accordance with their directors’ duties, that they resolve that the Club grant an indemnity to Ian Lewis Consulting Pty Ltd for that purpose and that non‑Palmer members be levied to fund the action;
iv.A formal notice of the meeting was waived.
2. Resolutions
a. It is resolved that:
i.The Club would grant an indemnity to Ian Lewis Consulting Pty Ltd in respect of the representative action;
ii.The Club would issue a special levy to all non‑Palmer members of the Club in an amount to be determined by the directors for the funding of the representative action with such funds to be quarantined from other funds of the Club for the purpose of funding the representative action.
Mr Ian Lewis abstained from voting on the above resolutions. All other directors voted in favour of the resolutions. Mr Wallis’ vote was received by email.
3. Other business
a.Directors discussed that this was the best outcome that could be sought for members at this time and that this is a last effort for the Club to try and achieve a satisfactory outcome for members and if it is not successful, the directors will consider resolving to wind up the Club.
Closed at 6.05pm.
At para 6 of that affidavit, Mr Lewis explains that he and other directors of the Club entity gave instructions for an undertaking to be given to the Court confirming that the indemnity “is only to be funded out of funds raised by the special levy and other voluntary contributions made to the representative proceeding”. He also says he believes that the Club entity, in granting the indemnity, is acting in the Club entity’s best interests because the Club entity “is able to undertake the financial exposure by levying members by way of the special levy” as a means of resolving the impasse between Mr Palmer and the majority of the shareholders in the Club entity once and for all.
The undertaking is in these terms:
Undertaking
The directors of The President’s Club Limited, Patrick John Kelly, Ian George Lewis, Bruce Murdoch Wallis, Colin Wayne Owen and Maree Kay Frecklington, undertake to the Court:
1.For the purposes of the indemnity granted to The President’s Club Limited to Ian Lewis Consulting Pty Ltd in respect of Federal Court of Australia proceeding number QUD734 of 2019 (the Representative Action), to only utilise funds:
a.Received from the special levy to be issued to all members of The President’s Club Limited (other than Mr Palmer and his related entities) for the purpose of funding the Representative Action; and/or
b.Voluntarily contributed by members or directors of The President’s Club Limited for the purpose of funding the Representative Action.
2.Pending the outcome of the Representative Action, The President’s Club Limited will not incur any expense or liability other than in the ordinary course of business.
3.Should the Representative Action not succeed (including by way of any appeal filed):
a. The directors will consent to a Court ordered winding up;
b.Alternatively, The President’s Club Limited will call a meeting of members for a resolution to be put to the members to voluntarily wind up The President’s Club Limited in accordance with Chapter 5, Part 5.5 of the Corporations Act 2001 (Cth);
c.In respect of that resolution, the directors of The President’s Club Limited will recommend that such resolution be passed.
Date: 10 December 2019
On 18 December 2019, the Court approved the contents of an “opt out notice” and ordered that a copy of that notice be sent to the non‑Palmer members of the Club entity.
In the opt out notice, the non‑Palmer members of the Club entity are told that, as the law stands, it is not possible for the Club entity to seek orders compelling any one to buy members’ shares (and accompanying villa interests). However, such a remedy may be available when a claim known as an “oppression claim” is successfully brought by a member of a company who has satisfied the Court that the conduct of the company’s affairs is either contrary to the interests of the members as a whole or is oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity: para 4.
The notice also says that Lewis Consulting will stand as the plaintiff in a representative oppression claim (oppression class action) which will seek orders “compelling the Palmer Group to buy shares at a price to be determined by the Court”: para 5. It says that the “oppression class action” will ask the Court to set that price at $65,013 together with interest over seven and a half years at Court rates (being approximately $35,000) and all sums paid by way of levies since then and up to the conclusion of the case (being approximately $12,000 per member): para 7. It says that if that claim were to be accepted by the Court, the total sum payable would be in the order of $112,000: para 7.
As to the question of whether a person is a class member, the opt out notice says that the relevant person is a class member if, relevantly, he or she is a member of the Club entity; not a member of the “Palmer Group” or a director of CDLI or Palmer Leisure Coolum Pty Ltd; as at 29 January 2020 (and a further date to be nominated prior to the hearing of the class action), he or she (or it) has no outstanding levies owing to the Club entity: para 19.
As to the indemnity, the opt out notice says that the Club entity has agreed to indemnify Mr Lewis for any costs he or his company incurs in the proceeding including any costs that he or his company may be ordered to pay the Palmer Group in the event the case is unsuccessful: para 20(b). The notice also says, on this topic, that the Club entity “proposes to levy all members (other than the Palmer Group) who do not ‘opt‑out’ of the class action in accordance with paragraph 26 below of this notice to cover those costs by way of a special levy to be used solely for the oppression class action, which will be levied in addition to the monthly levies presently issued”: para 20(b). It says that the special levy will be legally recoverable by the Club entity from those members in accordance with the terms of the Club entity’s Articles of Association: para 20(b). It also says, as one of the qualifications to be in the class, that a member must be paid up and remain paid up in relation to any levies and any person who does not pay those levies will not be, or remain, a member of the class. On this topic, the opt out notice also says this:
21.Mr Lewis has entered into a Professional Services Agreement (the Costs Agreement) with McBride Legal, the solicitors, for the provision of services in relation to this representative action. The consequences of the Costs Agreement is that Mr Lewis is liable for the legal fees incurred by McBride Legal (including disbursements) in relation to this representative action. TPC [the Club entity] has indemnified Mr Lewis for the cost but the indemnity will only be paid out of money raised from members by the levy referred to in paragraph 20(b), together with the sum of $60,000 being the amount of directors fees which were already approved by members this year and which the directors have agreed to contribute instead of paying the special levy.
22.The solicitors for Mr Lewis have estimated that his costs should be no more than $500,000, but it may be more depending on any actions that may be taken by the Palmer Group. The Palmer Group have demanded security for their costs if the case is unsuccessful, in the amount of $537,500. That is a total of at least $1,000,000, which if all 320 members other than the Palmer Group and his companies pay, will amount to $3,125 each but will be more if any members opt out of taking part in these proceedings. This sum will not be levied all at once, but rather over time by instalments of $1,500 as soon as it is known which members have opted out of the class (some time in early 2020), with the remaining instalments to be levied before any scheduled hearing, which date is not currently known.
Mr Lewis says at para 8(d) of his affidavit of 7 February 2020 that monies raised by the special levy will be held separately to the other funds of the Club entity in a trust account maintained by the Club entity for that specific purpose and the funds will be used only to fund the representative proceeding to conclusion, as well as covering any potential adverse costs order which might be made. Mr Lewis says that the fact that the indemnity was given in favour of Lewis Consulting was a “determining factor” in his decision to make his company available to act as a lead plaintiff in the representative action. He also says that without the benefit of the indemnity, to be funded by the special levy, or some other form of equivalent protection so as to fund the conduct of the representative proceeding including any potential adverse costs order, he would not have given instructions for the commencement of the proceeding: paras 10‑12.
At para 13, Mr Lewis expresses some observations about the application by CDLI for an injunction to restrain the Club entity from raising and using the special levy mechanism. He says that if the Club entity were to be restrained from raising and using the special levy to raise funds for the representative proceeding, “some other equivalent arrangement would have to be made for a third party to collect funds from the non‑Palmer members in order to fund the representative proceeding”. He says that the special levy was agreed by the directors of the Club entity “because the Club is seen as a central point of contact for the members of the Club and so it was considered the most effective way to communicate with the members about the representative proceeding and to marshal the necessary funds to conduct the representative proceeding and meet any adverse costs order”. He also says, in this context, that he notes that the Club has “the legal right to levy its members accordingly to meet those costs under its Constitution”. He also says that if no other equivalent arrangement is made to collect funds from members, he would withdraw his company as lead plaintiff in the representative proceeding.
As to the impact of the special levy, Mr Lewis, speaking as a director, says that the Club entity is continuing to issue ordinary levies to pay its ordinary expenses and those funds are held separately from the special levy. He says that, as such, the Club entity administering and using the special levy, does not make the Club entity better or worse off. He says that, functionally, the Club entity is doing no more than raising and holding funds on trust for a specific purpose. He says that the Club has not used any resources or incurred any expenses in the issuing of the special levy and receipt of the funds paid pursuant to the special levy. Mr Lewis says that a separate bank account in the name of the Club entity as a “trust account” has been established solely for the purpose of receiving and distributing the special levies and other voluntary contributions towards the representative proceeding.
Mr Lewis says that the non‑Palmer owners of the Club collectively own 320 quarter shares in the Club. As at 29 January 2020, opt out notices have been received with respect to 11 quarter shares. On 31 January 2020, the directors of the Club entity caused notices for the special levy to be issued to the remaining non‑Palmer members who had not opted out of the representative proceeding. An example of such a notice is the notice issued to Rinlink Pty Ltd designated “Feb 2020 class action special levy”. The amount is $1,500. Mr Lewis also says that by reason of the opt out notice and subsequent correspondence sent by the Club entity’s Board to non‑Palmer members on 20 December 2019 and 16 January 2020, members have already been advised that the Club entity will be issuing the special levy and, furthermore, the first instalment has issued. He says that any changes to these arrangements will likely cause confusion for owners, many of whom are elderly and retirees. He says that by reason of his discussions with a number of members, he believes that they have difficulty keeping up with the communications they receive and understanding the matters addressed in those communications and this is particularly true of matters of a legal nature. He says that by reason of his involvement with the Club entity over the years and his dealings with members, he has formed the view that “the simple way in which the Club [entity] has issued the special levy gives all members the best and fairest opportunity to take part in the representative proceeding if they wish to do so”.
By a letter dated 17 December 2019, the solicitors for CDLI, Alexander Law (Mr Iskander), raised a number of matters with McBride Legal (Mr Robson) concerning issues relating to the proceeding commenced by Lewis Consulting. Many matters are raised in that letter but, relevantly for present purposes, the topic of a contended contravention of s 260A of the Act was raised. The solicitors asserted that their clients considered that the conduct in which the directors of the Club entity were proposing to engage, in relation to the representative proceeding, would involve the provision of financial assistance in connection with a process of acquisition of shares in the entity, contrary to the prohibition contained in s 260A of the Act. References were made to the observations of their Honours, Kiefel CJ, Gageler, Keane, Gordon and Edelman JJ in Connective Services Pty Ltd v Slea Pty Ltd (2019) 373 ALR 65 at [23] in which their Honours, in that paragraph, express views about the notion of “to acquire” and “acquisitions” for the purposes of s 260A(1). The solicitors then observed that the conduct of the Club entity, in relation to the representative proceeding, “is plainly conduct which ought to be restrained”. They also observed that “nothing in the undertaking” provided to the Court by the directors of the Club entity “is capable of addressing the concerns outlined in this letter”. Those concerns, for present purposes, are confined to the concern expressed about a contravention of s 260A of the Act. At para 13 of that letter, the solicitors said this:
On the contrary, the very terms of those undertakings (which refer to the indemnity already granted by TPC [the Club entity] to the Applicant in the Representative Proceeding [Lewis Consulting], proposed further activities by TPC including raising a “special levy” for the purpose of funding the Representative Action and proposed further activities of TPC in dealing with amounts voluntarily contributed by members or directors of TPC for the purpose of funding the Representative Action) make plain that TPC and its directors are:
…
(e)proposing to engage in conduct which would involve the provision of financial assistance in connection with the process of an acquisition of the company’s shares contrary to the prohibition in section 260A of the Corporations Act.
The propositions recited at 13(a), (b), (c) and (d) are not relevant for the purposes of the interlocutory application.
The solicitors sought an undertaking, at para 14 of the letter, by 19 December 2019, that the directors undertake to do these things: (a) take steps to withdraw the indemnity granted by the Club entity to Lewis Consulting in connection with the representative proceeding; (b) not to take any steps to raise a special levy from members for the purposes of that proceeding; (c) to take steps to return any voluntary contributions by members or directors made for the purpose of funding that proceeding; (d) not to accept any further voluntary contributions; (e) not to take any step towards the funding of that proceeding; and (f) to take steps to restore to the Club entity all amounts expended by the Club entity which were the subject of criticism at para 3(c) of the letter.
Those undertakings were not given by the directors of the Club entity. The matter at para 14(f) does not relate to any contested question which is alive on the interlocutory application. The letter of 17 December 2019 was sent by email to McBride Legal at 4.30pm that day.
On the following day, the Court conducted a case management hearing in relation to the representative proceeding for the purpose of determining the content of the opt out notice. A range of matters in relation to the draft notice were the subject of submissions from both the Club entity and CDLI. Both parties were represented by the counsel who had represented those parties in the winding‑up proceedings. After hearing a number of contentious matters about the content of the notice, the Court approved the opt out notice for despatch to the non‑CDLI (Palmer) members of the Club entity. The opt out notice as described earlier, contains a number of observations about the representative proceeding, the indemnity and the proposal to issue levies to members as the funding mechanism for the proceeding with a view to seeking orders that Palmer entities buy out the shares and co‑ownership interests of the non‑CDLI (Palmer) interests. On 19 December 2019, the parties agreed the final form of the opt out notice. The Court made an order (on that basis) for the sending of the notice to the group members for the purposes of ss 33X and 33Y of the Federal Court of Australia Act 1976 (Cth) together with directions about particular matters.
Mr Howard Hunter‑Smith is the principal of HCS International. That company provides consultancy services to the Club entity. He says that on 20 December 2019, he took steps to establish a “Special Levy Trust Account” for the receipt of monies deposited for the purpose of funding the representative proceeding. On 1 February 2020, he caused notices of a special levy to be issued to the non‑CDLI (Palmer) members of the Club entity by email and post (depending upon the contact details for each member) who had not opted out of the representative proceeding. He says that, as at 7 February 2020, an amount of $200,495 has been deposited into the Special Levy Account. He also says that he has sent correspondence to the non‑CDLI (Palmer) members of the Club entity in relation to the special levy and representative proceeding on 19 December 2019, 16 January 2020 and 28 January 2020.
On 9 January 2020, CDLI filed the originating application in this proceeding supported by a concise statement and the interlocutory application for the orders described at [1] of these reasons.
Section 260A is in these terms:
SECTION 260A FINANCIAL ASSISTANCE BY A COMPANY FOR ACQUIRING SHARES IN THE COMPANY OR A HOLDING COMPANY
260A(1) A company may financially assist a person to acquire shares (or units of shares) in the company or a holding company of the company only if:
(a) giving the assistance does not materially prejudice:
(i) the interests of the company or its shareholders; or
(ii) the company’s ability to pay its creditors; or
(b)the assistance is approved by shareholders under section 260B (that section also requires advance notice to ASIC; or
(c)the assistance is exempted under section 260C.
Note: For the criminal liability of a person dishonestly involved in a contravention of the section, see subsection 260D(3). Section 79 defines involved.
260A(2)Without limiting subsection (1), financial assistance may:
(a) be given before or after the acquisition of shares (or units of shares); and
(b) take the form of paying a dividend.
260A(3) Subsection (1) extends to the acquisition of shares (or units of shares) by:
(a) issue; or
(b) transfer; or
(c) any other means
As to the phrase “units of shares”, s 9 of the Act provides, so far as it relates to shares, that the term “unit” means a right or interest, whether legal or equitable, in the share, and includes an option to acquire such a right or interest in the share.
As to s 1324 of the Act, subsection (1) provides that where a person has engaged, is engaging or is proposing to engage in conduct that constituted, constitutes or would constitute a contravention of the Act, the Court may, on the application of a person whose interests have been, are or would be affected by the conduct, grant an injunction on such terms as the Court thinks appropriate. Subsection (1A) provides, relevantly, that for the purposes of subsection (1), a company’s contravention of s 260A(1)(a) “affects the interests of a member of the company”. Subsection (1B) provides that if a ground relied upon in an application for an injunction is conduct or proposed conduct of the company or other person that is said to constitute or would constitute a contravention of s 260A(1)(a), the Court must assume that the conduct constitutes, or would constitute, a contravention of that provision unless the company or person proves otherwise. Subsection (4) confers power upon the Court to grant an injunction pending the determination of an application under the section (interim or interlocutory). Although the interlocutory application makes reference to s 1325(2) of the Act, the application is pressed under s 1324 of the Act.
Much of the factual material in support of the application is designed to demonstrate that the Club entity is engaged in the provision of financial assistance in the acquisition of shares in the entity. The affidavits of Mr Lewis make plain that the dominant objective of the non‑CDLI (Palmer) owners is to maintain a proceeding which secures an order for the acquisition of their shares by the CDLI (Palmer) interests at a fair price.
The applicant places particular emphasis upon the decision of the Court of Appeal of the Supreme Court of Victoria in Slea Pty Ltd v Connective Services Pty Ltd (2018) 359 ALR 159 (“the Slea decision”) and the decision of the High Court in the appeal from the decision of the Court of Appeal, Connective Services Pty Ltd v Slea Pty Ltd (2019) 373 ALR 65 (“Connective Services”).
The particular circumstances engaged by that litigation require examination.
The relevant contextual matters are these.
In 2003, two companies were incorporated to conduct a mortgage aggregation business. They were Connective Services Pty Ltd and Connective Service OSN Pty Ltd. Both companies can be conveniently described as the “Connective companies”. The shareholders in the company were Slea Pty Ltd (“Slea”) holding 33.33% of the shares; Millsave Holdings Pty Ltd (“Millsave”) holding 50% of the shares; and Mr Haron holding 16.67% of the shares. The Constitution of each Connective company by clause 77 contained a pre‑emption clause containing pre‑emptive rights in shareholders to acquire the shares of other shareholders in particular circumstances. As the High Court observes in Connective Services at [4], the pre‑emptive rights provision required that before a shareholder could transfer shares of a particular class, those shares had to be first offered to existing shareholders of that class in proportion to the number of shares of that class already held by that shareholder.
In 2009, the sole director and sole shareholder of Slea, Mr Tsialtas, entered into an agreement with a financier for the sale of his shares in Slea. A dispute arose about that agreement. In August 2010, Slea, Mr Tsialtas and the finance entity, entered into a second agreement called an “Accommodation Agreement”. In related proceedings, the 2010 Agreement was disclosed to the Connective companies, Millsave and Mr Haron. In 2016, the Connective companies commenced proceedings against Slea and the financier in which Millsave and Mr Haron were joined as defendants. In those proceedings (the “pre‑emptive rights proceeding”), the Connective companies asserted that the 2009 Agreement and the Accommodation Agreement breached the pre‑emptive rights provisions of clause 77 of the Constitution. The Connective companies contended that Slea intended to transfer its shares in the Connective companies to the financier without complying with the pre‑emptive rights provisions. The Connective companies sought relief in the pre‑emptive rights proceeding which included an order to compel Slea to offer its shares in the Connective companies to the other shareholders, Millsave and Mr Haron, in accordance with the pre‑emptive rights provisions of clause 77 of the Constitution.
Thus, the Connective companies were found to have provided financial assistance to Millsave and Mr Haron in the acquisition by them of shares in the Connective companies in contravention of s 260A of the Act. In the High Court decision in Connective Services, the Court (Kiefel CJ, Gageler, Keane, Gordon and Edelman JJ) examined the scope of s 260A of the Act and, in particular, the notions of “financially assist” and the scope of conduct falling within the term “to acquire”.
At [13] in Connective Services, their Honours observed that Hoffman J’s observations in Charterhouse Investment Trust Ltd v Tempest Diesels Ltd [1986] BCLC 1 (“Charterhouse”) concerning the notion of “financial assistance” echoed earlier remarks of Mahoney JA (Samuels JA agreeing) in the Court of Appeal of the Supreme Court of New South Wales that the words “financial assistance” are “words of a commercial rather than a conveyancing kind”: Burton v Palmer [1980] 2 NSWLR 878 at 890. Hoffman J had said in Charterhouse at 10 that the words have no technical meaning and their frame of reference is the language of ordinary commerce.
Their Honours at [13] also note Hoffman J’s observation at 10 that in reaching a view about whether the company has given “financial assistance”, it is necessary to examine “the commercial realities of the transaction and decide whether it can properly be described as the giving of financial assistance by the company”. At [16], their Honours observe that in the form in which s 260A appears in the Act, the notion of financial assistance remains “a commercial notion”.
At [22], their Honours make these observations about the breadth of the notion of “financial assistance” in s 260A:
The financial assistance need not involve a money payment by the company to the person acquiring the shares. Any action by the company can be financial assistance if it eases the financial burden that would be involved in the process of acquisition or if it improves the person’s “net balance of financial advantage”, in relation to the acquisition. For instance, the assistance might involve the company paying a dividend by means other than by payment of cash. The breadth of the notion of financial assistance is particularly evident by s 260C, which creates exemptions for matters that would otherwise involve financial assistance. The exemptions include: (i) in the ordinary course of commercial dealing creating a lien on partly paid shares in the company for amounts payable to the company on the shares; (ii) in the ordinary course of commercial dealing entering into an agreement to permit the person to make payments to the company on shares by instalments; (iii) a discharge on ordinary commercial terms of a liability that the company incurred as a result of a transaction entered into on ordinary commercial terms; and (iv) “assistance given under a court order”.
[emphasis added; citations omitted]
At [23], their Honours expressed some observations about the scope of the words “to acquire”. Their Honours said this:
The words “to acquire” require a sufficient link between the financial assistance and the acquisition of the shares or units of shares. Section 260A(1) does not require that an acquisition actually take place, since the provision can be contravened and injunctions can be ordered before any acquisition actually takes place. In this sense, “to acquire”, like the express words of s 205(1) of the Corporations Law, includes conduct that is in connection with the process of an acquisition of the shares or units of shares and not limited to conduct for the purpose of acquisition. Acquisition also has broad connotations. It does not require a transaction or transfer. It includes acquisitions by issue or transfer or other means.
At [24], their Honours made a number of observations about the notion of material prejudice in the context of a proceeding commenced by a company to enforce its Constitution, including enforcing pre‑emption requirements in a Constitution. At [24], their Honours said this:
It may be that in many such cases a company’s conduct in enforcing its Constitution by refusal of registration will occasion no material prejudice. However, if the company’s conduct causes material prejudice to the interests of the company or its shareholders or the company’s ability to pay its creditors, such as if the company’s conduct includes incurring the cost of commencing and maintaining associated legal proceedings that would often be brought by others, there is no textual basis, nor any reason of principle, why s 260A must be incapable of extending to such conduct arising from any of these examples.
At [25], their Honours note that the potential breadth of s 260A is constrained by the operation of the material prejudice integers at s 260A(1)(a). Their Honours observe that consistently with the protective purposes of s 260A(1) and its concern with “minority shareholders”, the reference to “shareholders” must be understood as a reference to shareholders collectively and each shareholder individually.
At [28], their Honours made this observation about the onus of proof in the context of s 1324(1B):
It has been said that a company disputing the application of s 260A(1) bears the substantive onus of proof to negate material prejudice in all cases. That issue did not arise in this appeal and was not the subject of any submissions in this Court. Relevantly to this appeal, s 1324(1B) provides that in an application for an injunction based upon an alleged contravention of s 260A(1)(a), the court “must assume that the conduct constitutes, or would constitute, a contravention of [s 260A(1)(a)] unless the company or person proves otherwise”. In relation to s 1324(1B), the Court of Appeal correctly concluded that, in proceedings for an injunction under s 1324(1) to restrain a contravention of s 260A(1)(a), s 1324(1B) required the Connective companies to disprove that their conduct constituted a contravention of s 260A(1)(a). The Connective companies were therefore required in the application for an injunction to disprove each element of “the conduct” that “would constitute” a contravention of s 260A(1)(a) including those in the prefatory words.
The way in which the litigation emerged before the primary judge and then the Court of Appeal of the Supreme Court of Victoria was this.
In the primary proceedings, the Slea entity and the financier, Minerva, applied before the primary judge for a stay of the proceedings or alternatively an injunction restraining further conduct of the proceedings on the footing that the proceeding involved a contravention of s 260A(1) of the Act. Those parties were unsuccessful in that application and they then sought leave to appeal from the orders of the primary judge made in the interlocutory application. The question was whether the primary judge had erred in determining the interlocutory application by concluding that the conduct of the Connective companies did not engage a contravention of s 260A(1) of the Act.
This application is an application for an interim injunction pending the trial of the proceeding.
In approaching the question of whether an interim injunction ought to be granted, I apply the principles identified in Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57, Gleeson CJ and Crennan J at [19]; Gummow and Hayne JJ at [65] to [72], subject to the statutory requirements of s 1324(1B).
Before turning to s 1324(1B), the first question is whether I am satisfied that there is a serious question to be tried as to whether the conduct of the Club entity engages the implied prohibition in s 260A(1) of the Act.
The threshold question begins with the language: “a company may financially assist a person to acquire shares”.
Those permissive words, subject to the qualification giving rise to the implied prohibition, involve three concepts. The first is the notion of “financially assist”. The second is the notion of “a person”. The third is the notion of “to acquire shares”. Those three terms focus upon a person who is being financially assisted to acquire shares. The questions are: Who is that person? Is that person being financially assisted? Is that person being financially assisted to acquire shares?
There is no doubt that the term “financial assistance” is very broad.
There is also no doubt that the phrase “to acquire” includes conduct in connection with a process of acquisition of shares and is not limited to conduct “for the purpose of acquisition”.
Equally clearly, the notion of “acquisition” has “broad connotations”. However, as the quote at [22] of their Honours’ reasons in Connective Services reveals, the entire notion of financial assistance is bound up with, as broad as that term is, financial assistance to a person to acquire shares. The financial assistance includes any action by the company if it eases the financial burden of that person or if it improves that person’s “net balance of financial advantage”.
In this application, the non‑CDLI (Palmer) shareholders seek to bring representative proceedings against the CDLI (Palmer) interests on the ground of oppression with a view to securing an order for the acquisition by the CDLI (Palmer) entities of the shares in the Club entity of the Group Members at a “fair price”. They seek a disposal of their shares (and related co‑ownership interests) by order of the Court which would result in an acquisition by the parties bound by the Court’s order. The exercise by the Board of the power to issue a special levy to the non‑CDLI (Palmer) interests, coupled with the indemnity, prima facie involves financial assistance being provided to the non‑CDLI (Palmer) members for the purposes of the representative proceeding. However, those steps do not engage s 260A(1) of the Act because financial assistance, however broad it may be, must be a form of financial assistance provided to a person to acquire shares. No financial assistance is being provided to CDLI or any other CDLI (Palmer) entities who might ultimately be bound by an order arising out of successful litigation taken by the group members in a representative proceeding.
It seems to me that the observations of their Honours in Connective Services at [22] strongly recognise that whatever form the impugned conduct might take (that is, the financial assistance) it must be a form of financial assistance provided to the person seeking to acquire shares.
In this case, the CDLI (Palmer) entities are not seeking to acquire shares in the Club entity under any circumstances. They are seeking to resist such an order. Whether the steps taken by the Board of the Club entity fall within the power to issue levies to the non‑CDLI (Palmer) shareholders or whether those steps are consistent with acting in the best interests of the shareholders of the Club entity overall are questions which are not presently alive on this application, except to the extent that they relate to a contended contravention of s 260A(1) of the Act by the Club entity by engaging in the conduct described in these reasons.
As to s 1324(1B), that section casts an obligation on the Club entity, in the face of an allegation that its conduct constitutes a contravention of s 260A(1)(a), to disprove each element of the conduct (asserted against it) that is said to constitute a contravention, including the prefatory words of the section which I have just described. In relation to this obligation, I take the view that on an application for an interlocutory injunction in which the contention of a contravention of s 260A(1) is alleged, the entity must put on sufficient evidence to call into question whether the Court can be satisfied that a serious question to be tried arises.
The Club entity has sought to do that by seeking to demonstrate through the affidavits of Mr Lewis that the company is not providing financial assistance to a person to acquire shares but rather is taking steps (which may well engage the notion of financial assistance) to a group of persons seeking to bring proceedings to secure an order for the disposal of their shares. I am satisfied that the Club entity has demonstrated that it is not engaging in conduct which bears the description of providing financial assistance “to a person to acquire shares”, in the sense described at [22] and [23] in Connective Services.
Thus, I am satisfied that the section is not engaged and accordingly, the application for interim relief must be dismissed with costs.
Two further matters should be mentioned. First, if, however, the section is engaged by reason of the conduct of the Club entity, I am satisfied that CDLI is materially prejudiced by incurring legal costs in connection with the representative proceedings in which the order, earlier described in these reasons at [44], is sought. Second, submissions were made by the respondent that the applicant had delayed in filing the application for interlocutory relief especially having regard to the discussions which took place and a case management conference which occurred concerning the opt out notice. I am not satisfied that filing the application on 9 January 2020 reflected undue delay and I am not satisfied that the applicant’s participation in the discussions about the opt out notice represented any abandonment of its contentions about a contravention of s 260A(1) of the Act by the Club entity.
I certify that the preceding one hundred and eight (108) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood. Associate:
Dated: 25 February 2020
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